Are the mics on? Okay great. So I’m Ross Smotrich, the REIT analyst here at Barclays. Thank you very much for joining us here at the Barclays Global Financials Conference. We have – we are honored to have several bell weather REITs speak here today. And I would say out of the bell weathers, Simon is the most bell weather. So I’m very pleased to be able to introduce Simon Property Group.

Simon is the largest retail REIT, it’s the largest REIT in the country, it’s an S&P 100 firm with a market cap of roughly $57 billion and asset value totalling $90 billion. And it is a real company runs over 300 properties, roughly 250 million square feet globally. David Simon, we’re very pleased to introduce, is the company’s CEO and Chairman. He is a graduate of Indiana, Columbia business school. He has been the CEO of Simon since 1995.

I’ve had the privilege, I guess some those days of working with David almost since the beginning. And it is probably fair to say during that time, he has been instrumental in growing Simon into the global entity that it has become today. So we are very pleased to have him. The format here is David has a presentation and then you’ll have the opportunity to ask him some questions. So David, thank you very much for joining us.

David E. Simon

Okay. So Ross, what he didn’t tell you is that so I used to work on Wall Street, I moved back to the – at that point a family business in 1990. He and I got to know each other when we were doing real estate workouts. Okay, so we had a fewer screaming matches in our day, but you were always a gentleman, thank you for that.

And the good news is we are here to, we are still around 23 years later and in fact, that now to segway in all this stuff. But because the financial crisis, I guess this is a great conference where we sell 85 years of Lehman Brothers et cetera. As you know capital was set out of the system and real estate had a kind of a downfall during that period of time. But compared to the early 90s, there was child’s play, okay, that was real stress, right. So really that now we’ll get to Simon Property Group. And I was told this was really a proof and I have decided that was enough – can we. Any – do we have any ability to move this.

Ross L. Smotrich – Barclays Capital, Inc.

Sure. He’s giving you the – wait a second.

David E. Simon

Okay, I guess larger, so unlike certain politicians I don’t need to tell a prompter.

Ross L. Smotrich – Barclays Capital, Inc.

I got a couple of letters, that’s all I’m looking forward.

David E. Simon

Okay, here we go. Try now.

Ross L. Smotrich – Barclays Capital, Inc.

Certainly try forward.

David E. Simon

All right, so when we – I’ll tell you what given the hard topic, if we get this working on we know, but first of all let me just give you a quick introduction to, I think what Ross said, is that we are the largest public real estate company in the U.S. and in the world with a $57 billion equity market cap. We are primarily focused on retail real estate with a 325 properties around 241 million square feet. We have the strongest industry balance sheet. So one of the things that I learned when Ross was tormenting me in the early 90s is that real estate and capital are somewhat related, you better have a strong balance sheet. And as an A rated company, demonstrates our financial strength. 50 years, we’ve been in the business for 50 plus years, although I hate saying this, that’s the last page. But we have a high regarded and experienced management team. We are the only real estate company, the S&P 100. And we are growing earnings and dividends. And in fact, we are as you know a lot of the real estate companies were also re-capitalized in 2009 and during that kind of a Lehman et cetera financial crisis. We have actually outgrown. We did issue equity during that time and actually sold some very expensive bonds. For this – last year and this year, we have record earnings and record dividend growth per share. So we’ve outgrown any expensive capital that we raised during those dark days of 2009.

We are at, and if you compare our earnings per share to not only the retail real estate companies, but all real estate companies during that period of time. We probably have the number one growth from the highs that probably occurred in 2008 and the real estate industry till today and certainly on our dividend per share. So for instance, our dividend was $3.60 in 2008. Today it’s annualized at $4.60, but it’s going to end up because we have to pay-out as a retail taxable income that’s coming and that being around $5 plus next year, of course subject to build approval on that stuff, but there is very fewer of any real estate companies will have that kind of dividend growth during that period of time.

So I think I mentioned all those selling go to the next. Just deferred real estate in perspective, its reasonably under weighted as a asset class in the public markets given its focus in terms of the GDP its around 11% and you can see REITs, which is basically the form that the investors can public real estate companies is only 2%. So there is a big GAAP here in terms of allocation. And it’s always been the very preferred method by the state and the corporate pension plans that on the lot of real estate over the years probably last year allocations in the 8% to 12% range generally, right.

Ross L. Smotrich – Barclays Capital, Inc.

Yes.

David E. Simon

The capital discussed here, of the world, most of that is in the form of direct. It should be an indirect i.e. in public securities because if you look at the cost where the public pension funds on real estate, when I told you in terms of direct real estate and appear to advisors, it’s much more efficient and effective for them on a return basis to actually earn more on public securities, but that’s a whole big interesting dilemma in terms of how they look at real estate, because we do trade in aftermarket to market everyday. But the fact in that is real estate generally is a class in public markets, is under represented. I see that, that should figure out because they have the other one in securities, correct.

So they had figured out well ahead of the U.S. pension fund system. And mainly that, we’re here because there is this – we are kind of related to financial service industry, cost of capital is very important to us and real estate, we are tied to kind of the GDP and the consumer, and obviously we have an inflation hedge associated with us. However, we are a much better business than financial services because we have hard assets that are easy to value.

We have stable operating performance and cash flow growth and our returns are very predictable in terms of redevelopment and new development. So there are some relationships that that we have with kind of a boarder financial institutions but we are much more stable and frankly, a better business. No ballparks here. Cash flow is simple. We built a building, we lease it up, we charge rent, we gain inflation kicker or a retail kicker because we are percentage rent.

Tenants come, tenants go. If we build a good building, we lease it to the next guy. And as Ross mentioned earlier, get to that in the second, we’ve had unbelievable performance the last three to four months, the performance of our stock along with our REIT reached generally – underperformed the S&P 500 dramatically combination of a couple of things, one is obviously rising rates, but over an extended period of time there is less correlation here than you would think. And in particular retail real estate owners because comp sales have not been as good as Simon is good, kind of the consumers move toward less durable goods and maybe more non-durable goods, which ebbs and flows over time.

We have varied in the correlation historically to our cash flow to what retailers’ comp sales are. So and that kind of goes back to that beyond the real estate, and if the retailer is not producing kind of the results that we want them to as their leases expire, we will lease it to a better retailer. So the dramatic change in comp store sales decreased shift and does not based on our members and our own analysis, has very little correlation to our cash flow growth. It’s a very important point and in fact, and we may be publishing a white paper on that and haven’t decided yet, would you be interested in such a white paper?

Ross L. Smotrich – Barclays Capital, Inc.

Sure.

David E. Simon

Okay. Thanks. So what makes us a little bit different, you can see us and I’m going to kind of contrast us to the REIT world. You can see our market cap is much larger kind of than the next group, both domestically and world-wide and people begin to question at the sizes you are able to grow, the fact that is when we look at our ability in terms of being able to do smart and perhaps four acquisitions or re-development and new development pipeline. We’ve been successful to use the economies and scale that we are able to generate and continue to grow our business at the high-end of our peer group, if not at the highest end. These are some stats that kind of gives you a sense of the diversity and quality of our portfolio and show you that and it gets along to the – the important point about where an all tenants comp sales growth decreases. The real question is can I still grow my cash flow. Remember, my tenant sales, their tenant – my tenants their sales are not my sales.

My sales are the rent that I charge, and the insurance policy that I have against them is what I’m charging generally, as a percent of occupancy cost. And as you can see here highlighted, I hope either there is more way you can see that. Okay, but I thought you can see it. But we are at the low-end of 11.4% occupancy cost while we’re building new leases today in the rest of the 15% we are in so. Our embedded upside and our leases are – is pretty strong for the foreseeable future and as you can see where our size allows us to be really efficient.

We have the highest operating margins in the business at 75% sort of kick-in a peer group, say general growth is 70.8%. And if you look at their occupancy costs their 12.8%, and we are at 11.4% with a higher productivity portfolio. So you can see that begins to short the future growth that I think that we have in our existing portfolio. And in addition, just to put us in scale, and I think Ross mentioned some times people salary, the success that we’ve had, but also kind of where we rank in market cap and we are right around Ford, Eli Lilly. It’s important be a little bit above Eli Lilly because there are another company headquartered in Indianapolis and if I have a bigger market cap than them, I get better coach tickets, okay. No I’m kidding.

But it is the dual side of the breadth and the depth of the company now. Along the points that I talked to you about just in terms of our – the fact that we are retailers had a really good run over the last couple of years in terms of the sales growth, and your comps are still increasing. But they are increasing at a less rate than they were. But if you look at our schedule here, this kind of puts the point in perspective what I said to you earlier, which is – now we own the physical building and the retailers and I hope I don’t have any of my family retailers here, but when they don’t produce we’ve got to look to replace them.

And if you look at our top 10 tenants as of 12/31/1993 and you contrast it to our top 10 tenants to day, you could see that basically they’ve completely changed and yet we are still standing and that’s the nature of our retailers, that it is competitive. It is clearly changing, but the fact that is you cannot duplicate the kind of real estate portfolio that we have and that enables us to sign the right retailer who is the right excitement. And most importantly, what this all results in is our ability to grow our comp NOI or a comp cash flow from our property.

So for instance, that was in Boston and I don’t know a couple of months ago, and I asked that non-dedicated real estate investor, which she thought our cash flow did, a comp NOI cash flow did in a great recession of 2009 and she said well, it better be down 20% and I said why would you be shocked if I told it was flat and it was. So that’s the difference in that owning the physical asset is that our cash flow from our existing portfolio, which we call comp was flat in the great recession was if you do not believe me from their side for you, but that’s the difference in our business model within then financial service industry model or in fact, the retailer is that we’re not dependent upon them.

We get the upside when they produced great results, because we have percentage rent clause, but as along as our leases around the market, we’ll be able to generate increased cash flow from our existing portfolio. In addition even as their comp sales growth rate decelerate. So I mean that’s all kind of explained here that you can basically see the evolution retail real estate and as long as you are in the quality, retail real state you’ll be able to continue that to grow your cash flow.

In addition why we’re different, we’re very exposed in the outlet business, we’ve been added through since 1998, that’s a great business for the retailers, great business for the consumers and that’s great business for the landlord, and we’ve had a terrific line of redeveloping and doing new development. We’ve been a very good capital allocator in terms of both redevelopment and new development.

Our pipeline as we see it is around $5 billion, we think it will generate around 10% or so return on its investment. So roughly, that’s $500 million of additional operating cash flow that we’ll be able to generate from our business over the next three or four years as that gets stabilized, all of that’s able to be funded in our – from our existing cash flow after our dividend, including growing our dividend.

So we can see kind of a virtual positive cycle that it’s able to generate as long as we can execute the redevelopment and the new development pipeline. And you can see we also have the ability, we’ve been largely smart, but we also have the ability to manage that such that if we need the economy goes kind of left and we’re going right. We’re able to bring it down and squeeze it in quickly based upon our track records.

So if there is this, we’ve been – we kind of solved the handwriting on the wall. 2010, the world wasn’t ending. So we not only sold it up our new development or redevelopment portfolio a little bit above our peer group, but we also did around $3.5 billion to $5 billion of existing deals, and buying the estates that we filed was kind of a good values well before our peer group and we got those in at kind of eight or so cap rates that also was able to generate some pretty good growth for us.

Speaking of that, we have done roughly $33 billion of deals. Since 1993, we have done these – we’ve been criticized along the way. but in fact in hindsight, these have all been very successful. We’ve also financed them conservatively. so how many people do you know – companies do you know have been able to do $33 billion of deal, due none of which were dilutive. And at the end of the day, improved their balance sheet from a non-rated company to an A-rated company over that period of time, not many, but we’ve been able to do that and we just recently got an upgrade from S&P annuities and to an A-rating even with the fact that we’ve been such inquisitive company over the period of time.

And as an example of our ability to move when others don’t, we did the prime outlet deal in 2010 and that was kind of early 2010 when people still weren’t surely hold was coming back and we invested in Europe again, think about Europe a year and two or three months ago about 14, 15 months ago, the only another guy that I know that was investing in Europe, 15 months ago was called as Flim, and our company, the good news is, we’re in the money on that investment. The euro has stabilized and actually, the consumer there is starting to stabilize.

We’ve made very great progress in redirecting the company.

And so again, I think we have the ability to work throughout the world, but see things that others don’t and execute it. At the same time, we’re never going to jeopardize this balance sheet for the sake of growth. And with respect to that, let me just say that this gives you a sense of where our debt-to-total market cap is, certainly, rising rates as a company that does have debt, does put some governor on growth that I will point that if you look at our average interest rate, maturities that are coming between 14 and 16 mere 6%.

Today we are still able to borrow at below 4%. So we’re still a significant arbitrages as our debt rolls over going forward. And I mentioned to you, the recent upgrade, A annuities and A2 were the steady outlook and $16 of liquidity. Our 15-year returns speak for themselves; we think it’s a great entry given where the stock price is. And since we’ve been basically public, we’ve had a compound annual return of 17% over that period of time with our revenues have gone from $4.34 billion to $4.8 billion, our earnings have gone from $2 to well over first core consensus was $8.74 – $8.72 small switches, which you remember, Ross.

Terrific. Let me now separate a track record. and so we are very pleased with the businesses and where things were going. And this is another busy chart you can’t see it. but I think that when I’d say to you given our dividend yield, our growth, we were kind of the analytic community years of what they’d take the fair value as and vis-à-vis their REIT growth, we still think we represent tremendous value, put in the track record, you put in our multiple, you put in our balance sheet, you put in our development pipeline, our ability to grow earnings and our dividend I mean, it’s kind of depressing frankly, but in terms of where we trade vis-à-vis, our peer group I think we do represent pretty good value within our peer group.

So bottom line at the end of the day, our organic growth of comp NOI growth, we’ve seen a 3% to 4% range, this value creation pipeline we think generates another incremental tree or so percent dividend yield of 3% in growing, wholesale accretive acquisitions is kind of how we put their building blocks together of our business that we see generating again, acquisitions get lumpy, if you are doing mobile and average, but we see this kind of 10% plus return over. The value of real estate today is higher on Main Street and on Wall Street. so I think we do. Today, I think it’s temporary, but today, we do trade at a discount to a real estate. We have a financial cushion against rising interest rates, if you look at our balance sheet. In addition we have embedded rent growth, if you look at our expiring leases compared to where market is, improving economy to evaluate days drive consumerism, which will also help in our comp NOI growth. And the fact is in terms of the real estate loan, the big retail malls their supply and demand have never been better in our favorite, which is good, which is leading to some of this re-development that I’ve talked about the ability to add to some of our great franchise real estate, but also creates kind of a unique circumstance for us to be able to continue to generate positive returns. So that’s it?